Thursday, December 24, 2009

Not only does the Fed not tell us what’s charging off on the asset side of its balance sheet, of all the crap they’ve taking in, but the Treasury’s accounting for purchases of Treasury securities suggests the Fed has been much busier than they have admitted, monetizing US federal debt, and that international demand for our sovereign debt is much weaker than most imagine.

I called my Senators and told them not to reappoint Bernanke. Even though I have a Ph.D. in economics and lots of industry experience, I have trouble fathoming what’s going on. But some things stand out: WaMu failed and the depositors were just fine. They found people to run the bank. Most big banks have infrastructures that run themselves largely independently of the wheeling and dealing that occupies the fat cats. As Barry Ritholtz and I and others have pointed out, the bailouts represented the largest wealth transfer in the history of the world. And in this case the transfer of wealth was upwards, from taxpayers to the generally well-heeled bond and equity investors—and the very well compensated managements—of the rescued institutions. This was truly obscene.

And now Ben Bernanke has apparently decided that he needs to rescue the US government. This is pretend and extend on a massive scale.

I surmise that the monetary authorities of the world are trying to orchestrate a global debt jubilee through rampant coordinated inflation, perhaps hyperinflation once it gets going—and that the Vampire Squids of the world, the Goldman Sachs and as a class the well-heeled speculators of the world with deep pockets and even deeper access to leverage, are just salivating over the opportunity to lever up again after the next debt-deflationary collapse circa 2013 (and there must be another debt-deflation because we still carry all that bad debt on the books). Debts that can’t be repaid get charged off sooner or later—unless the Fed buys them and never tells us about them, in yet another secret monetary transfer to the wealthy!

This reminds me of the cyclic universe theories, in which the universe goes from big bang up and down to big bust in a new singularity, over and over again. For surely the next leveraged rip-off by the moneyed class in the almost inevitable inflation to come will enable further strangulation of honest working people around the world, and further increases of inequality, that primary cause of the current collapse of effective demand.

For most people, money in the bank is a deposit, not a loan. It’s money. The feds could have insured deposits up to $250,000 or more and let all the big bankrupt financials collapse and most people wouldn’t have noticed any more than a change in the sign on the bank. And then with all the bad debt and the bad managements cleared out of the system, we might have started to work towards having sound money.

But that would have required a kind of backbone and commitment to principle that our federal government and the Fed don’t have.

The Fed blew it, and continues to blow it, if Sprott’s analysis is correct. Volatility of all kinds is bound to increase once the inflation begins. We are in the eye of the storm.

Friday, December 18, 2009

Kucinich: ‘Class war is over, working people lost’

WASHINGTON -- Reflecting on the growing divide between Wall Street and Main Street, Rep. Dennis Kucinich (D-OH) on Wednesday offered a powerful critique on the state of the economy in an open committee hearing.

The harrowing comments from Kucinich, who is Chairman of the Domestic Policy Subcommittee, come amidst a national unemployment rate of 10 percent, one year and several months after the economic collapse of 2008 has marred the livelihoods of many.

"Don't tell me about class warfare," he continued. "Come to my neighborhoods in Cleveland. I will show you class warfare. I’ll show you hollowed out areas. I’ll show you businesses that went down because they don’t have access to capital. And on Wall Street it is fat city. Don’t tell me about class warfare."

Kucinich, a former presidential candidate who is viewed across the nation as a progressive champion on many issues, said that despite the recent uptick in economic figures, many regular Americans continue to struggle.

"All across this country people are starved for capital," Kucinich said. "Small businesses are failing, you have shopping centers that are becoming vacant because people can’t afford the rents anymore because the people who own the malls the developers are getting cash calls and credit is tightening."

"The separation between the finance economy and the real economy is real. This is not some fake idea. You can’t call that class warfare. That’s a fact."

Kucinich, who voted against the Emergency Economic Stabilization Act of 2008 (also known as the Wall Street bailout), lamented it as a catalyzing force for the rising inequality of income in the United States.

"The wealth of this nation is being accelerated upward," Kucinich said. "That’s one of the problems that I had with the bailout."

"You could say that it helped stabilize the American economy, but what I see is the separation between the real economy and Wall Street. Wall Street is stabilizing, markets are a lot better, banks are doing well -- they parked their money at the Fed for a while so they could get higher interest rates."

With income and wealth inequality at levels greater than in 1929, Kucinich’s statement is not an exaggeration. Presidents George W. Bush and Barack W. Obama, along with Hank Paulson, Ben Bernanke, Timothy Geithner, Larry Summers and the rest of the Whole Sick Economic Policy Crew, will go down in history as the puppets of the plutocracy who drove the nail into the coffin of the American middle class for a generation or more. Just wait until they start raising taxes to pay for the bank bailouts! You never hear these shysters ever talk about raising taxes on the rich (see previous post). They are good lackeys of the plutocracy, all.

Combined with his sickening Nobel Prize acceptance speech, which displays a stunning ignorance of the realities of terrorism, social justice and proportionality (see Global Guerillas for up-to-speed discussion of asymmetric conflict) President Obama, with his soaring yesteryear rhetoric and good-little-boy conformism to his masters’ wishes, may go down as our most fey, quixotic president ever.

Tuesday, December 15, 2009

Thank you, Joe Lieberman! We wouldn’t want all those rich Republicans you represent in Connecticut to have to pay more taxes!

From the Nation. The top graph shows the average income of the top o.o1% compared to the bottom 90%. The higher the peak the bigger the gap between the two groups. In 2006 you would need an income of over $10 million to make it into the top 0.01% while your income would have to be less than $100,000 to be in the bottom 90. The second graph shows the marginal tax rate over the same time period. Here is graph I created plotting similar data.

Monday, December 14, 2009

John Williams of shadowstats.com argues that the international float of American currency losing favor as a store of value will trigger a sell-off, domestic inflation triggered by rising import prices, and a resultant hyperinflation. Grim reading. Predicts failure of domestic electronic commerce and a return to barter.

Friday, December 11, 2009

Via Wikipedia: Trans-Afghanistan Pipeline It’s all about “our” oil. Can’t we just buy it, like everyone else? The Chinese are way ahead of us in their strategic thinking about this. They do deals instead of invading.

Monday, December 7, 2009

Warning: this is research, not investment advice. You invest at your own risk.

The Coppock Guide as well as the animal spirits stock market indicator continue up from below the zero line indicating that there is still emotional support for the rally on an adaptation level-theoretic basis. The stock market index has been inflation adjusted.

Comparing the current position to the long 1968 to 1982 bear market, it looks like we’re at about 1975. The market will trade in a range for while, and then enter the final leg down to a bottom in three to six years, in about 2012 to 2015. The previous range-bound episode lasted over a year. Given the decennial weakness associated within the first few years of the decade, I don’t think range-bound trade will last that long this time. I think we could see a top this winter. Also, the pronounced tendency toward collapse early in a new decade suggests that we may not have to wait six years for the final bottom.

Friday, December 4, 2009

“Animal spirits” or confidence levels are projected to continue to rise sluggishly toward zero in about 2012 with relative stabilization of the unemployment rate, which is forecast to rise for another ten months to ~10.5 percent.

A close-up shows this recovery will resemble the jobless recovery of the last decade in basic shape.

The government appears to be “grinding to a halt,” as an acquaintance put to me recently, as lobbyists strangle any progressive legislation. The Presidential election of 2012 is likely to occur in an America so fractured as to be almost unrecognizable. “Polarized” does not adequately describe the splitting-up of the electorate that is occurring, to the joy of the money interests invested in maintaining the status quo. Everyone, from Paul Krugman to Ron Paul to Dick Cheney, will be blaming their own special demons for the mess, when the real demon is the one in the mirror, and the fact that Americans don’t trust government and hence don’t know how to govern themselves.

There is little chance of negative real GDP growth in the coming year. I forecast sign only. Coming off a big bottom we may get big percentage changes but simply looking around tells you the economy is very sick. U6 unemployment is near 20 percent. About 40 percent of measured unemployment is over 27 weeks. And then there are another several million of marginally attached workers who would like to work but haven’t actually looked for work in the past four weeks.

The big waves of residential mortgage resets coming in the next several quarters will not be kind to housing or households. I note in passing that this recession forecasting model has forecast the last two recessions in real time, a year or more ahead. As you can see from the chart, it was flashing red in 2006, well before the crisis.

The current collapse of effective demand results from excessive inequality in income and wealth. The lower income classes were lured into debt beginning about 1980 to try to keep up with the upper income classes. Wall Street pumped and dumped the housing bubble. Home-equity debt pushed consumption to over 70 percent of GDP, far above long-term trend level of mid-60s percent. Consumption as a percentage of GDP will fall, and government will be politically unable to replace it with government investment spending. The failure of demand will forestall housing price reflation, and the debt deflation plaguing the weaker banks will continue. A secondary, more severe collapse of demand may occur at the end of this cycle around 2013-2014. Many fear war will be the solution chosen to mobilize the people.

The United States of America is a fiscal basket case. It is time for the government to start practicing triage, taking care of those whose lives are truly being ripped apart by the profligacy of the past thirty plus years.

Some KISS (keep it simple, stupid) proposals:

Take the cap off the payroll tax immediately and lower the flat rate for all employees. Yes, this is a tax increase on the highly compensated, but hey, it’s a flat tax, and every good neo-con can get behind a flat tax, right? The cap is currently at about $120,000.

Provide a livable poverty-level stipend to the unemployed. I am seeing middle-class families in my community simply dropping into destitution—running out of money—when just one working spouse loses a job.

Pass a health bill. If you haven’t watched Michael Moore’s “Sicko,” you should, whatever you think of him, just to see what it’s like in developed countries other than ours. PBS also ran a revealing series on this. America is rightly being viewed as a barbaric place by many outside. People with socialized medicine tend to measurably healthier than we are, and are generally happy with it. The level of propaganda we’re exposed to in-country is astounding. The bottom line is that as with the collapse of the Soviet empire, the collapse of the social contract in America is likely to have profoundly negative health consequences.